by Tim Di Muzio
1.7 Rise of the billionaire class, 1985–2013 (source: Data are from Forbes’ billionaire list, archived at stats.areppim.com/stats/links_billionairexlists.htm (for 1996–2013); the figure of 13 in 1985 is given in Frank (2007: 10).
Geographically, billionaires are split between five regions. According to Forbes, the United States still boasts the most billionaires at 442, ‘followed by Asia-Pacific (386), Europe (366), the Americas (129) and the Middle East & Africa (103)’.12 Using data from Bloomberg’s Billionaire Index, only 20 of the world’s billionaires are women.13 Put another way, for every 1 female billionaire there are about 71 male counterparts. As we noted above, we will have to keep this gender disparity in mind.
But once you become a billionaire, what are the chances of remaining on Forbes’ list? According to Credit Suisse, the odds get better ‘at the extreme upper-end of the world wealth distribution’. Of the top 100 billionaires from 2001 to 2012, an average of 17 left the list each year. This does not mean that they became destitute, just that they were no longer billionaires. If we consider a larger sample and compare lists from 2000 to 2010 for G7 and BRIC countries (where most billionaires reside), Credit Suisse found that 55% of billionaires remained on the list from 2000 to 2005 in G7 countries and 45% for the BRICs.14 From 2005 to 2010, the odds increased from 76% in the G7 to 88% in the BRICs (Credit Suisse 2013: 28).
The rest of us
We now come to what the Occupy movement has called the 99%, or the 99.3% if we keep to the view that the so-called 1% are really the 0.7% of high-net-worth adults. We have already seen how this tiny class has more than they will ever need for a decent livelihood. But how wealthy are the rest of us? Credit Suisse estimates that in mid-2013, US$4,000 worth of assets would put someone in the wealthiest half of the global population. It would take US$75,000 worth of assets, however, to be included in the top 10% of global wealth owners. To be a member of the top 1%, it would take US$753,000, less than the US$1 million in net worth or financial assets to qualify as an HNWI. Overall, Credit Suisse estimates that ‘the lower half of the global population possesses barely 1% of global wealth, while the richest 10% of adults own 86% of all wealth and the top 1% account for 46% of the total’ (Credit Suisse 2013: 10–11). Marx’s insight that capital concentrates in ever fewer hands appears to be confirmed by the evidence.
At the base of the 99.3% pyramid we find 3.2 billion adults, or 68.7% of the wealth-holding population. Collectively, this group is estimated to own US$7.3 trillion in wealth or just 3% of total worldwide wealth. The next group is a further billion adults who have somewhere between US$10,000 and US$100,000 in wealth. They make up 22.9% of adult wealth-holders and collectively own US$33 trillion or 13.7% of global wealth. The final group – those with wealth of US$100,000 to US$1 million – represents 7.7% of the wealth-holding adult population at 361 million individuals. Collectively, they have a net worth of US$101.8 trillion or 42.3% of the total. As we saw earlier, the 0.7% or 32 million individuals possess the remaining wealth: US$98.7 trillion or 41% of the total. But the base of the Credit Suisse pyramid is a bit misleading; for example, it hides the distribution among the 3.2 billion. While we do not know what the base of the pyramid would look like if the cut-off were less than the US$10,000 threshold, we do know that a huge swathe of the globe’s population makes such a low income that it would be virtually impossible for them to accumulate any significant wealth. The World Bank estimates that ‘more than 20 percent of the population in developing countries live on less than $1.25 a day, more than 50 percent on less than $2.50, and nearly 75 percent on less than $4.00’ (World Bank 2013: 5). Since officialdom at the World Bank defines extreme poverty as living on less than US$1.25 a day, this means that 1.2 billion, or just over a third of the base of the pyramid, are officially extremely poor and unlikely to have any substantial material or financial wealth.
1.8 The global hierarchy of wealth (source: Credit Suisse 2013)
Figure 1.8 demonstrates that there is a considerable hierarchy within the 99.3%. This should hardly come as a surprise, since we already know that Credit Suisse estimates that 10% of all adults own 86% of all wealth on the planet. What this means is that 700 million people own the majority of the earth’s wealth while the remaining 6.3 billion collectively own the remaining 14%. If we had set out to design a social order that is extremely efficient at inordinately rewarding a tiny fraction of human beings while ensuring that the majority endure low incomes and little wealth, we could scarcely have done a better job. But we cannot be satisfied with an analytical look at income and wealth distribution. We must now embark on a political economy of dominant ownership which in large measure means that we must provide a political economy of capital as power.
2 | CAPITAL AS POWER AND THE 1%
Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power. (George Orwell 1949)
… if power is indeed the implementation and deployment of a relationship of force … shouldn’t we be analyzing it first and foremost in terms of conflict, confrontation and war? That would give us an alternative … hypothesis: Power is war, the continuation of war by other means. (Michel Foucault 2003: 15)
Thus social power becomes the private power of private persons. (Karl Marx 1996: 85)
The key word is capital. (Fernand Braudel 1977: 47)
We have just been presented with a stark image of global disparity: the very few own incredible wealth while the vast majority own little to nothing. While the dominant owners worry about both preserving and accumulating more money, the vast majority of humanity experiences daily struggles for survival, dignity and livelihood. In this chapter we will encounter the reasons why such a massive chasm of inequality can never be equalised let alone significantly narrowed in the present system. The predominant argument in this chapter is that you cannot solve radical inequality – let alone global poverty – by pursuing a logic founded upon the very idea of perpetuating ever greater inequality (Nitzan and Bichler 2009).1 The goal of capitalists is not to achieve greater equality of income and wealth but to make income and asset ownership more unequal. This, no doubt, comes up against barriers and various forms of resistance, but that does not stop the logic from operating or triumphing. This logic is what Nitzan and Bichler (ibid.) call differential accumulation and it is a pathological, albeit historical, drive pursued by the few. Lest there is any confusion, what I mean by pathological is that the differential accumulation of money, social status and power is the ultimate end of capitalist endeavour. To be sure, this logic is likely weaker in some capitalists than others, but by definition – that is, to be a capitalist – they must obey the logic of differential accumulation regardless of whether other ideas and values they may hold are in direct contradiction with the accumulation of money. To take one example: Thomas Jefferson’s capitalisation of slave labour. The original composer of the Declaration of Independence is said to have disliked the effects of slavery on the social order. But Jefferson’s estate, fortune – indeed, his wealth – depended on owning and forcing other human beings to work for him. So while Jefferson may have fulminated against the American slave system, his desires and actions in another sphere – the sphere of gentlemanly living founded upon the accumulation of money made on the backs of slave labour – forbade him from transgressing that wretched system of human oppression during his lifetime (Cohen 1969; Davis 1999). In a similar way, we might find a number of hedge fund managers concerned about global climate change or world peace and they may even donate to organisations that advocate for these causes. But if they suspect that higher returns could be made from investing in companies that make a significant contribution to climate change or in those that make what Kurt Vonnegut called ‘massacre machinery’ in Slaughterhouse-Five, then it is a virtual certainty that those investments will be made.
To begin to explain this relationship of force between owners and the rest of us, we need to turn to political economy and, more specifically, to the work of an emergent school of critical political economy inspired by the work of Jonathan Nitzan and Shimshon Bichler (Nitzan and Bichler 2009; Baines 2014; Brennan 2012; Di Muzio 2007; 2014; Hager 2013; 2014; McMahon 2013). This new school of thought argues that capital is commodified differential power expressed in finance and only finance. In this view, capitalism is not a mode of production concerned with machines and labour alone, but a more encompassing mode of power. To unpack what this means, we have to go back to the origins of political economy and Braudel’s key word from the quote above: capital. In other words, since most of us would agree that we live in capitalist societies – or perhaps more appropriately, a capitalist world order – we ought to know a little something about how political economists (and much later economists) have theorised capital. This is the subject investigated in the opening of this chapter. I then move on to discuss Veblen’s recognition of capitalisation as the primary act of capitalists. Understanding capitalisation is essential in thinking about the political economy of dominant owners and to answer some of our questions regarding why wealth is divided in the way it is and whether or not this division is justified in some scientific way that we can evaluate and agree with. After looking at capitalisation, I then introduce the approach to political economy taken by the ‘capital as power’ school – in part inspired by Veblen’s work. As we shall see, the key process we will concern ourselves with is the differential capitalisation of income-generating assets. In order to discuss this, we will introduce the concept of ‘dominant capital’ and what I have called ‘dominant ownership’ in the introduction. If these concepts are unfamiliar to some readers, rest assured that they will be explained in detail with examples provided in straightforward English. In the final section of this chapter, I sketch what could be called the architecture of capitalisation. This will help us connect the ‘capital as power’ approach to what we have already discussed in Chapter 1: how high-net-worth individuals (HNWIs) hold their wealth.
A brief genealogy of the term ‘capital’
What is today referred to as classical political economy emerged in the seventeenth century as a contested body of knowledge concerned with the nature, causes and distribution of wealth (Aspromourgos 1996; Milonakis and Fine 2009). It was also a language of battle. The ‘science’ of political economy could at once be mobilised for preserving or justifying present class relations or it could be used to challenge and overturn them. Either way, in societies divided by gender, class and sentiments about ‘race’, political economy can never be neutral. To paraphrase Cox, ‘political economy is always for someone and some purpose’ (Cox 1981: 128). The attempt at neutrality is largely what separates the early political economists from the neoclassical economists so dominant in our schools and universities today. Mainstream economists subscribe to a formal and mathematised scientific objectivity. For over a century since the marginal revolution of the nineteenth century, these economists have largely evacuated politics and power from their interpretation of economic reality. No earlier political economist, regardless of their aims or purpose in writing, understood politics and economics as two separate spheres. As Nitzan and Bichler caution:
It should be noted upfront that economics – or, more precisely, the neoclassical branch of political economy – is not an objective reality. In fact, for the most part it is not even a scientific inquiry into objective reality. Instead, neoclassical political economy is largely an ideology in the service of the powerful. It is the language in which the capitalist ruling class conceives and shapes society. Simultaneously, it is also the tool with which this class conceals its own power and the means with which it persuades others to accept that power (Nitzan and Bichler 2009: 2–3, emphasis original).
It is for this reason that this study is one of critical political economy: it does not separate politics from economics, and it theorises capitalism not as a benevolent mode of production concerned with making everyone better off but as a mode of power serving the very few. But before we discuss this in some detail, we must return to what the early political economists were concerned with.
On a general level it could be said that classical political economy concerned itself with four main problematics: 1) the problematic of the wealth of nations; 2) the problematic of wealth distribution among the population; 3) the problematic of justifying unequal wealth or property; and 4) the problematic of pauperism and poverty. The first of these problematics was concerned with how wealth – or what we would today call economic growth – was generated. The second problematic was to explain the distribution of wealth – how it was divided up between diverse classes or ‘ranks’ within society and, to some extent, how wealth was divided between kingdoms or principalities. Since wealth was clearly divided unequally for the classical political economists, a third problematic involved finding a justification for unequal wealth or property. Why did some accumulate more property and riches than others? And finally, the early political economists – some not very well known today – had to grapple with the rise of a new social actor: the poor, or, put another way, the pauper. As Polanyi explains:
Pauperism, political economy, and the discovery of society were closely interwoven. Pauperism fixed attention on the incomprehensible fact that poverty seemed to go with plenty. Yet this was only the first of the baffling paradoxes with which industrial society was to confront modern man ... Where do the poor come from? was the question raised by a bevy of pamphlets which grew thicker with the advancing century (Polanyi 1957: 83, 90).
In one way or another, it could be argued that these four problematics animated the classics of political economy. It was not until much later that political economists would try to tackle a more foundational problematic: what is capital? Even today, scholars of all shades take the term for granted: ‘Economists, political scientists, even literary theorists, freely employ the concept, yet few can say what the word “capital” truly signifies … they continue to discuss “capital” as if it were conceptually unproblematic’ (Cochrane 2011: 89–90). Yet, since it can be argued that capital is the central institution of our civilisational order, we ought to be clear about its meaning. Of course, we can identify with Shilliam’s argument that ‘no concept possesses an essential meaning’. In this sense, our purpose should be to draw out ‘the concept’s developmental trajectory in specific historical and socio-political contexts’ (Shilliam 2004: 63). What, then, did capital mean historically, and how do we interpret it today?
We can thank the French historian Fernand Braudel for inquiring into the matter during his studies. Braudel found that the term ‘capital’ derives from ‘capitale’, a Latin word based on the expression for a head: ‘caput’. It emerged in the twelfth to thirteenth centuries and it meant ‘funds, stock of merchandise, sum of money, or money carrying interest’ (Braudel 1983: 232ff). According to Cannan’s research, when applied to business, the concept originally meant ‘money to invest or … money which had been invested’ (Cannan 1921: 478). But something happened that would alter the meaning of capital and set it upon a new, more materialist footing. In the hands of Adam Smith’s insightful yet confused political economy, the concept of capital underwent two possible transcriptions: capital could mean either: 1) a store of funds for investment (money); or 2) circulating or fixed capital (material goods) (Smith 2005: 224).2 In his investigation of the early origins of the concept, Cannan put it thus:
in Book 2, ‘Of the Nature, Accumulation, and Employment of Stock,’ he [Smith] divides the stock of an individual and of a community into two parts, the ‘capital’ and the ‘stock reserved for immediate consumption.’ This indicates a very serious departure from the conception of capital which had hitherto prevailed. Instead of making the capital a sum of money which is to be invested, or which has been invested in certain things, Smith makes it the things themselves (Cannan 1921
: 480, my emphasis).
This reinterpretation had profound consequences for the future of political economy. As decades turned into centuries, neoclassical or mainstream economists came to focus on the latter definition, grounding ‘capital’ in an unwavering materialism. In the new ‘science’ of economics, capital came to mean a physical factor of production such as plant, machines or equipment. For example, here’s how one of the most popularly used textbooks on macroeconomics defines the term: ‘Capital is the set of tools that workers use: the construction worker’s crane, the accountant’s calculator, and this author’s personal computer’ (Mankiw 2005: 47). If this definition were true, then it follows that capitalists must be keenly interested in accumulating ever more equipment, plant and machinery, or, in Mankiw’s formulation, tools, cranes, calculators and personal computers. Unknowingly, Mankiw is repeating Smith’s confusion just as other economists instruct the neoclassical faith into impressionable young minds. Now imagine if we were to ask actual capitalists such as George Soros or Bill Gates whether they were interested in accumulating tools, equipment, calculators, personal computers and the like as the end goal of their endeavours. Our question would more than likely provoke ridicule. As Marx (and even Smith, despite his confusion) understood, capitalists are not interested in accumulating plant, machines and equipment as an end in itself. Capitalists are interested in accumulating ever more money, or, as Marx put it, ‘use-values must therefore never be looked upon as the real aim of the capitalist; neither must the profit on any single transaction. The restless never-ending process of profit-making alone is what he aims at’ (Marx 1996: 105). But when it came to providing an analytical definition of capital, Marx too remained trapped in a staunch materialism. Had he stayed with capital as money for investment or money invested in an income-generating enterprise and had theorised its actual and symbolic nature to command humans and natural resources, he might have come up with a different theory. Instead, Marx offered a theory whereby accumulation is solely rooted in the exploitation of surplus labour power during the production of commodities.3